Initial margin rules for buyside will affect derivative pricing

Author: Olly Jackson | Published: 3 Aug 2018

Buyside firms will be directly
concerned by
initial margin rules in September. This may impact derivative
pricing and volumes ahead of 2020 when all counterparties
trading over-the-counter (OTC) derivatives are set to be
included within the rules.

Initial margin,
a percentage of the purchase price of a security that an
investor must pay as a fee, will force upward pressure on
prices.

While trading volumes are currently
strong, there are certain segments of the derivatives market
that are being affected by the regulatory requirements and this
is only going to increase in the next 18 months.

"This drastically changes
the pricing of these products"

"If you are moving from a position of trading products
without exchanging collateral and now trading on a fully
collateralised basis, that can drastically change the pricing
of these products," said
Kerion Ball, partner at Ashurst.

The rules for non-centrally cleared derivatives under the
European Market...